Wall Street Beat: Mixed signals for hardware, components

Hardware and components insiders are giving off mixed signals about how business will fare for the rest of the year.

Tepid economic growth, unemployment, a soft housing market and a sovereign debt crisis in Europe have stoked fears that IT spending growth will slow, suffering from weak demand.

On Thursday after the markets closed, Texas Instruments, which makes chips for a broad range of devices including mobile phones as well as a variety of consumer and industrial products, cut its outlook for the third quarter. The company said it forecasts earnings per share of US$0.56 to $0.60 on revenue of $3.23 billion to $3.37 billion. Two months ago, the company had forecast EPS of $0.55 to $0.65 on $3.4 billion to $3.7 billion in sales.

"Macroeconomic weakness is resulting in broadly lower demand from both consumers and enterprises and as our customers (have) been or (are) faced with lower demand for their product, of course, they rationalize their inventory levels," said TI spokesman Ron Slaymaker on a conference call. "The real root issue is demand."

An updated PC forecast from Gartner Thursday highlighted the problem of weakening demand for some areas of the hardware market.

"Western Europe is not only struggling through excess PC inventory, but economic upheaval as well," said Ranjit Atwal, research director at Gartner, in a statement. "U.S. consumer PC shipments were much weaker than expected in the second quarter, and indications are that back-to-school PC sales are disappointing. "

Gartner cut its global PC shipment forecast for this year and next, also citing a trend toward devices like tablets. PC shipments will be about 364 million, a 3.8 percent increase compared to last year, Gartner said, reducing its prior forecast of 9.3 percent growth, made in June. Gartner also cut its forecast for next year. Though it expects shipment growth to hit 10.9 percent in 2012, it is lower than the 12.8 percent previously projected.

Not all news from the hardware and components sector was bleak, however.

While PC market growth slows, tablet sales will rise rapidly, according to a report this week by JP Morgan. The iPad will help push tablet sales to greater heights than previously expected, the investment services company said, raising estimates of total tablet sales for the year from the 46.1 million forecast previously to 51.9 million units.

In addition, the PC market, while suffering, is not uniformly sluggish globally. On Thursday, Lenovo chairman Liu Chuanzhi said he believes the company will overtake Dell to become the world's second-largest PC vendor by the end of this year, on the back of rising PC sales for the company. Last quarter, the company's PC sales increased by 22.9 percent year over year, way above the industry average in the low single digits. Chuanzhi ascribed the growth to strong sales in Latin America, Africa and India, as well as in its home market in China.

Some components makers also are forecasting a strong year. Nvidia on Tuesday provided a strong forecast for its fiscal year beginning next February. The company expects to report revenue of $4.7 billion to $5 billion in fiscal 2013, better than the $4.45 billion expected by analysts, according to Thomson Reuters.

Meanwhile, with the U.S. Labor Day holiday at the beginning of the week marking the unofficial start to the autumn trading season in the U.S., economic worries have sent tech stocks reeling, showing that confidence in the IT sector has been undermined. On the tech-heavy Nasdaq, computer stocks closed Thursday down by 4.19 percent for the year, while telecom shares were down 14.25 percent.

Nasdaq computer stocks slipped a further 2 percent midday Friday, after a key official in the European Central Bank resigned. The resignation of Jurgen Stark signals rifts in how to handle the possibility that several European nations could default on debt, sending reverberations through the world's banking systems. The news highlights fears that demand could slow for new IT purchases.

As news from industry insiders shows, however, certain pockets of the tech sector could remain quite strong. Third-quarter sales figures will provide a better understanding of where these areas are.

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